MM/U1 Topic 7 Environmental Scanning

Environmental scanning is the process of gathering information about events and their relationships within an organization’s internal and external environments. The basic purpose of environmental scanning is to help management determine the future direction of the organization.

The Environmental Scanning Committee is a valuable resource to management, allowing them to make decisions influenced from trended analysis of historical events to project future events. The committee also assists in creating action plans to address these upcoming events, reviewing action plans and appropriating resources for those plans, and putting management in contact with fellow staff members with the knowledge base to provide quality data for decision making.

Environmental scanning refers to possession and utilization of information about occasions, patterns, trends, and relationships within an organization’s internal and external environment. It helps the managers to decide the future path of the organization. Scanning must identify the threats and opportunities existing in the environment. While strategy formulation, an organization must take advantage of the opportunities and minimize the threats. A threat for one organization may be an opportunity for another.

Internal analysis of the environment is the first step of environment scanning. Organizations should observe the internal organizational environment. This includes employee interaction with other employees, employee interaction with management, manager interaction with other managers, and management interaction with shareholders, access to natural resources, brand awareness, organizational structure, main staff, operational potential, etc. Also, discussions, interviews, and surveys can be used to assess the internal environment. Analysis of internal environment helps in identifying strengths and weaknesses of an organization.

As business becomes more competitive, and there are rapid changes in the external environment, information from external environment adds crucial elements to the effectiveness of long-term plans. As environment is dynamic, it becomes essential to identify competitors’ moves and actions. Organizations have also to update the core competencies and internal environment as per external environment.

Environmental factors are infinite, hence, organization should be agile and vigile to accept and adjust to the environmental changes. For instance – Monitoring might indicate that an original forecast of the prices of the raw materials that are involved in the product are no more credible, which could imply the requirement for more focused scanning, forecasting and analysis to create a more trustworthy prediction about the input costs. In a similar manner, there can be changes in factors such as competitor’s activities, technology, market tastes and preferences.

While in external analysis, three correlated environment should be studied and analyzed:

immediate / industry environment

national environment

broader socio-economic environment / macro-environment

Examining the industry environmentneeds an appraisal of the competitive structure of the organization’s industry, including the competitive position of a particular organization and it’s main rivals. Also, an assessment of the nature, stage, dynamics and history of the industry is essential. It also implies evaluating the effect of globalization on competition within the industry. Analyzing the national environment needs an appraisal of whether the national framework helps in achieving competitive advantage in the globalized environment. Analysis of macro-environment includes exploring macro-economic, social, government, legal, technological and international factors that may influence the environment. The analysis of organization’s external environment reveals opportunities and threats for an organization.

Types of Environmental Scanning

Environmental scanning is a process of obtaining information from the environment. It helps prepare an organization to exploit the business opportunity by developing a sound resource base. Further, it also assists in preparing scenarios and to adjust with changes. Environmental scanning may be done in two ways as mentioned below:

(i) Centralized Scanning

If some specific environmental components are only analyzed, it is called centralized scanning. Under this, the important components which are likely to exert considerable impact to the business are only analyzed. For example, if economic conditions are only studies, it is termed as centralized scanning. Since specific components are only scanned, this is economical. Likewise, it helps to save time as well. However, it is not a comprehensive method due to the study of specific components only.

(ii) Comprehensive Scanning

“If all the components of environment are analyzed in a detailed and micro way, it is called comprehensive environmental scanning.”

Process of Environmental Scanning

Environmental scanning is a useful managerial tool for assessing the environmental trend. The following process is adopted for environmental scanning.

(a) Study the forces and Nature of the Environment

In the first step of environmental scanning, the forces of the environment that have got significant bearing in the growth and development of the business should be identified. They may be political, economic, sociology-cultural, technological, legal, physical environment and global components. After this, the nature of the environmental components is studied. The nature of environment may be simple or complex. It may also be stable or volatile. The nature of the environment affects a firm’s ability to predict the future. Some business may be operating in simple environment and others in complex. When there is a high level of uncertainty and complexity in the environment, environmental scanning becomes more critical.

(b) Determine the sources of Information

After studying the process and nature of the environment, the sources of collecting information from the environment should be determined. There are different sources through which information on business environment may be collected.

(c) Determine the Approach of Environmental scanning

After determining the sources of information the approach of environmental analysis should be determined. There are mainly three approaches to environmental scanning. They are:

Systematic approach: Under this approach, a systematic method is adopted for environmental scanning. The information regarding market and customer, government policy, economic and social aspects are continuously collected. In other words, the environment is monitored in a regular way. The timeliness and relevance of such information enhances the decision making capacity of the management.

Ad-hoc Approach: Under this, specific environmental components are only analyzed through survey and study. Ad-hoc approach is useful for collecting information for specific project, evaluating the strategic alternative or formulating new strategies. It is not a continuous process.

Processed form approach: Under this, the information collected from internal and external sources are used after processing them. Normally, the information obtained from secondary sources are processed and used as per the requirements of the business.

(d) Scan and Assess the Trend

This is the final step of environmental scanning process. It involves a detailed and micro study of the environment to identify the early signals of potential changes in the environment. It also detects changes that are already under way and shows the trend of the environment. The trend should be assessed in terms of opportunities and threats.